UK election result sparks more economic uncertainty
LONDON: Financial markets dislike uncertainty but were handed a hugely clouded outlook Friday after the Conservative party of Prime Minister Theresa May lost its parliamentary majority in Britain’s snap general election.
Traders and analysts in the City of London financial district spoke about feeling jaded, not just because they were up all night awaiting the results but because the UK’s second shock election result in a year throws the nature of Brexit talks into yet more doubt.
For the wider British economy, Friday’s result refocuses attention on the uncertain path lying ahead for London’s key financial sector as well as for businesses generally with close EU links.
“This is a serious moment for the UK economy,” Carolyn Fairbairn, director-general of Britain’s main business lobby group the CBI, said following the election outcome.
“The priority must be for politicians to get their house in order and form a functioning government, reassure the markets and protect our resilient economy,” she said in a statement.
“Politicians must act responsibly, putting the interests of the country first and showing the world that the UK remains a safe destination for business,” she added.
The initial reaction to the general election result has been to send the pound plunging.
However this in turn propelled the London stock market higher as a weaker pound boosts the FTSE 100’s numerous multinational companies that earn in currencies other than sterling.
“Everyone is a bit tired,” said Neil Wilson, senior market analyst at trading group ETX Capital.
“There are a lot of uncertainties,” he told AFP from his company’s offices soon after the start of London trading.
Markets don’t like instability
While the Conservative party came first in Thursday’s vote, it lost its parliamentary majority, and is now hoping to secure the support of Northern Ireland’s Democratic Unionist Party and its 10 seats to push it over the line.
May called the election in April to try and extend her majority and strengthen her Brexit-negotiating position, but her gamble backfired spectacularly and triggered widespread concern among leading business figures.
“The City of London would wish to see an effective and secure government formed as soon as possible,” said the body’s policy chairman Catherine McGuinness said Friday.
“Markets do not like instability. It is also important for the prospect of successful Brexit negotiations that we have certainty in the political system,” she added in a statement.
Leftist opposition leader Jeremy Corbyn, whose Labour party surged from 20 points behind in the opinion polls, has told May to quit after she “lost votes, lost support and lost confidence”.
“I think Corbyn was underestimated massively,” Kevin Hector, a fifty-year-old worker at Swiss bank UBS, told AFP on Friday. “The question now is Theresa May’s future (and) obviously it looks like rejection of a hard Brexit.”
A so-called “hard” Brexit would see Britain’s departure from the single market or tariff-free zone, while also ending the free movement of people.
“We might (now) have a softer version of Brexit, a smoother transition,” noted Wilson at ETX.
The past year has seen plenty of surprises in Western politics following presidential victories for Donald Trump and Emmanuel Macron in the United States and France, respectively, while it is almost 12 months since Britain voted in favour of exiting the European Union.
“The British economy has actually held up remarkably well over the last 12 months after the Brexit vote,” Andy Baldwin, a senior partner at financial group EY told AFP on Friday.
“That growth has been driven by consumer spending and borrowing. That has now reduced as we have seen inflation rise and we have seen imports increasing in price — therefore the growth going forward really needs to be driven by business investment and confidence.”